Keith R Jensen v. Minister of National Revenue, [1977] CTC 2121, 77 DTC 107

Delmer E Taylor:—This is an appeal from income tax reassessments for the years 1972 and 1973, wherein the Minister disallowed amounts of $1,810 and $1,992 respectively claimed by the taxpayer as travelling expenses. Both the appellant and the respondent rely, inter alia, on paragraph 18(1)(h) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

Facts

Since 1949 the appellant has been conducting a business known as Jensen Monument Company (hereinafter known as the “business”). For many years the address was 1492 West 56th Avenue, Vancouver, British Columbia, and the appellant maintained a post office box in Wainwright, Alberta. He resided in a house at the same Vancouver address. Almost all the appellant’s business was conducted in the Provinces of Alberta and Saskatchewan during the years in question, although in earlier years some monument sales had been made in British Columbia. In 1972 and 1973 the appellant made some 20 to 25 trips by air between Vancouver and the major cities of Alberta and Saskatchewan.

Contentions

The appellant claimed that the address in Vancouver, where he maintains an office in his home, is his business address, and that although he made no expense claim in his income tax returns for the upkeep of this office, nevertheless the travelling expenses were incurred while away from his office in the course of carrying on his business, and without such travelling there would have been little, if any, business.

The respondent asserted that the appellant’s business was carried on entirely in the Provinces of Alberta and Saskatchewan, and that the travelling expenses claimed as a deduction from income in each of the taxation years were not incurred by the taxpayer while away from home in the course of carrying on his business and as such are personal or living expenses.

Evidence

The appellant gave evidence himself and introduced certain documents in support of his case. The respondent called no witnesses and produced no evidence. The documents produced by the appellant were not considered by the Board to be significant, but the verbal testimony of the appellant in answer to questions from his counsel was of considerable assistance:

When I call on someone and I’m trying to sell them a headstone, in place of a business card I leave an envelope, the same as this Vancouver envelope, but I usually give the Wainwright Post Office Box . . . and I use it as a forwarding address, which is just automatically forwarded from the Post Office Box in Wainwright.

Q. Now what do you do in this office in your home?

A. A lot of things.

Q. Well, could you explain them to the Chairman?

A. When I come home on weekends from Alberta, I immediately go to work in my office. I have to do all the routing for the headstones which I have a truck and people that install the headstones for me. I do the routing, I do the invoicing, I take 16 to 18 newspapers in various towns on the prairies from which I get an awful lot of leads out of. I pick the obituary columns from these newspapers, record them and I look after the general business, the accounts coming in, the receivables. I send out receipts on them. I send out cheques to the monument company for the payment of the monuments and the general office routine. It pretty well takes up the weekends when I’m at home.

Q. What do you do in the winter?

A. In the winter—my business is a seasonal business. I continue to gather up leads and information regarding going back to work in March and I’m working on accounts receivable. I do a cash business but I’m dealing with the estates and stuff and I’m continually invoicing and receiving mail and finalizing the balance of the year and getting ready for the next year.

Q. And where are you doing this?

A. I’m doing it at 1492 West 56th Avenue, in my office in my home.

Q. And where does Jensen Monument Company do its banking?

A. The Bank of Nova Scotia in Vancouver and it’s always been there since oh, say ’51 or something like that.

Q. And which branch is that?

A. The Bank of Nova Scotia at 12th and Granville.

And in response to cross-examination by counsel for the respondent:

Q. Mr Jensen, could you perhaps explain why you never claimed the office in your house as an expense?

A. Well, I guess I thought of it several times and have never actually gone ahead and apportioned part of the expense of the home. It’s only a minimal part and I’ve never really figured that it was an item which was really a very important part of my home.

Q. Can I see A-2 please? There is a telephone on a desk there. Is that the telephone number that’s listed in the stationery?

A. That is right.

Q. Now is that listed in the directory assistance as Keith R Jensen? A. That’s right.

Q. Not the Jensen Monument Company?

A. No.

Q. The Jensen Monument Company was then a sole proprietorship, is that correct?

A. Yes.

Q. It wasn’t incorporated until just recently?

A. No.

Q. And that is an extension phone then for your house, and the residence, is that correct?

A. That’s right.

Q. Now where is this desk located?

A. It’s in the basement of my home.

Q. In the basement, in a room by itself or . . .

A. It’s in a room by itself.

Q. And what else is used in that room? Anything else, as a bedroom or a rumpus room.

A. No.

Q. It has no other uses, is that correct?

A. There is a toilet in that room.

Q. About how many square feet then would this room comprise that is used for office space?

A. Oh, I would say about a hundred square feet, possibly a little less.

Q. Now, on a typical day, or week, what would you do? Would you fly to Edmonton Sunday night and then come back Friday evening or just exactly what would you do?

A. Yes, usually Sunday afternoon I’d go to Edmonton and I’ll come back on a late flight on Friday .The first part of the year when I go out I stay out every other week till I really get going.

Q. And where would you stay while you’re in Alberta?

A. In a different town every night.

Q. So you would stay in hotels?

A. I stay in motels.

Q . And did you keep a car in Alberta or did you hire a car?

A. I drive it down in the spring and I bring it back in late fall.

Finally, to questions posed by the presiding Member of the Tax Review Board:

Q. When you go to the Prairies in the spring, you said the first time or two you spend . . .

A. I spend a two-week stint instead of coming home every week.

Q. A little longer stint at the start than later on in the summer?

A. Yes. The first time out for two weeks, I’m really busy getting everything going.

Q. Why is your business a seasonal business? Is the mortality rate in the wintertime somewhat less severe in the Prairies than in the summer?

A. No, but nearly all the monument companies are pretty well cut right down in the wintertime. They keep an employee or two on and make up a few headstones but you don’t start installing until the frost is out of the ground. It’s nearly always within a day or two of the 1st of May when we pretty well all start to install. It is a seasonal business.

Q. In the season from roughly March till October as you describe it in your appeal when you are working on the Prairies, is this—let we put it this way. Are the hours pretty regular or irregular?

A. Well, I work about 17 hours a day, so I figure that I get a full year’s work in the time that I work. I start early in the morning and I’m working till one o’clock at night doing various things. I’m actually making calls as late as I can possibly make them, which is up to about 10, 11 o’clock in the middle of the summer, when it’s light.

Q. On there (the appellant’s income tax return) is an item for truck expenses, $1,931.98?

A. Yes.

Q. Would that include the cost of driving your truck to the Prairies and back in the spring and the fall?

A. Yes, that’s going down and back.

Q. On there is an item of automobile expenses, $2,148.70. Would that include driving your car to the Prairies and bringing it back in the fall?

A. Yes.

Q. And I take it those are the same kind of vehicles that I’m accustomed to. Someone has to be at the controls of them?

A. That’s right, sir.

Q. Travel and accommodation, $3960, at $18 a day. Is that a room and meals?

A. That includes an estimate.

Q. It’s an estimate of what?

A. My daily expenses.

Q. Right. Sometimes you might pay $18 for a motel room and sometimes it might be $10 or sometimes your meals would be $10 or $20 but that’s your standard—that’s what you put in?

A. For those years that’s what my expenses were per day. It’s now up to about $26 a day. I now pay that much for a motel. The last two years they’ve just gone up tremendously.

Argument

Counsel for the appellant submitted that the whole matter came down to one question—is his office in his home? The comparisons made by counsel were to a salesman from Vancouver going to Prince George, or an accountant from head office of a firm in Toronto working in Vancouver. Although the appellant could have maintained an office in Alberta, he was merely saving money by not doing so. Counsel submitted no earlier tax cases in support of his position, relying totally on the view that the appellant’s business address was in Vancouver, not in Alberta.

Counsel for the respondent argued that the Minister’s position was sound on either of two bases: first, that the appellant carried on his business in Vancouver as well as on the Prairies; and second, that his place of business was really on the Prairies. In support of the first proposition, counsel’s comments were:

. I it appears that the appellant was allowed the travelling expenses to get to the territory where he carries on his business. In other words, the automobile expenses in driving his car to the prairies from his place of business namely, if you want to use Vancouver as his place of business.

Now what the respondent has done, using that approach is say okay, we will allow your expenses when you’re on the road but when you want to come home and you’re flying home every weekend, that is a personal living expense and is not deductible pursuant to paragraph 12(1)(h) of the Act. In other words, while you’re out earning income, producing income and travelling in your business territory, your sales territory that is, the expenses you incur while on the road are completely deductible and that is consistent in the way, the manner the appellant has been assessed. But the only part that was disallowed was for the air fares between Alberta and Saskatchewan and British Columbia, and as you heard, these were to come home on the weekends.

Now I submit to you, Mr Chairman, that there’s not really a lot of business activity that you can do on the weekends other than paperwork. For example, you can’t make a deposit at your bank; you cannot phone your supplier; you cannot talk to any suppliers. Perhaps you can contact people by phone but it appears that everyone who the appellant had to deal with were on the Prairies and that his source of supply was on the Prairies and therefore when he came home on the weekends, I submit that there was a great deal of a pleasure element in there. Without trying to penalize, and I submit this very Strongly, without trying to penalize the taxpayer and saying you must go and live near your place of business, I think the Department has fairly and justly said okay, your expenses that you’ve used for gaining and producing income are reasonable. I don’t think anyone has questioned that $18 a day figure or the amount of days that he’s been on the road. What they’ve questioned is what appears to be a personal living—personal and living expense of coming home. Commuting home on the weekends.

And for the second proposition:

... his sales territory was his place of business because once he went on the road, he left his truck there, he left his automobile there, he had a mailing address on the Prairies. Now we heard the reason for that mailing address and I think that’s consistent with this approach. Namely, that if you go to Saskatchewan and you only show people an address—a mailing address in Wainwright—that would mean that you’re showing to at least the Province of Saskatchewan that you’re doing business from Alberta, and I submit that’s consistent with the second approach taken by the Minister as an alternate approach.

That the place that the taxpayer was doing business was at the very least Alberta and the fact that he had an employee who worked for him in Alberta, didn’t do any work from the evidence while in BC, only while in Alberta. The business activities, the whole operation was out of Alberta and Saskatchewan for that matter.

Counsel pointed out that a major concern in deciding this case should be that, if the appellant’s contention was correct, then there would be nothing to prevent a taxpayer from living wherever he chose, having his business in a completely different location, and deducting the commuting expenses. The cases of John Opitz v MNR (1965), 39 Tax ABC 129, 65 DTC 545, and Mullaney v MNR, [1968] Tax ABC 444, 68 DTC 376 were suggested to the Board as being relevant to the matter at this hearing, and counsel summarized these in this way:

Mr Chairman, I submit that these two cases have great—are applicable to this situation and that it is by Mr Jensen’s choice to live in British Columbia that he had to incur these additional expenses and it is by reason of his choice that these expenses have been disallowed by the Minister. I don’t think that a decision against the appellant would have to have the result of implying that the Department of National Revenue stipulates where you must work. You still have that choice and I think that it would be an illogical conclusion to draw the inference that by not allowing the taxpayer’s appeal! or by allowing these—disallowing these expenses one must, in order to comply with the Income Tax Act, have to carry on business where you’re working. I think it is an option open to all taxpayers to work wherever they wish but that the way the Income Tax Act is set up, the format and framework of the Act is such that only expenses that are incurred for the gaining or producing of income and expenses that are not excluded by paragraph 18(1 )(h) can be deducted. That is all that the Minister wishes to purport.

Findings

In reviewing first the proposition of counsel for the respondent, the Board would suggest that, if the Minister’s first position (that the appellant conducted his business in Vancouver and the Prairies) is correct, then the Minister has little basis on which to disallow proven expenses between such places of business, and nothing has been brought to the attention of the Board to indicate the expenses were not valid, only that they were regarded as personal. The Board is satisfied that at least some business was conducted by the appellant when he was in Vancouver on weekends and during the winter, and would accept his evidence regarding the extent and importance of it, and believe that it could not be adequately conducted on the Prairies. Looking at the Minister’s second proposition (that the appellant’s business was totally on the Prairies), the Board respectfully suggests that this option is somewhat unavailable to the Minister, since in assessing the appellant’s tax returns, amounts to cover transportation (admittedly by car) to the Prairies from Vancouver in the spring and back to Vancouver in the fall were allowed, a situation which could only obtain if the appellant were travelling from his office to another place of his business, not from his home to business. With regard to the cases presented by counsel, the Board does not view either of these as applicable. One deals with real estate property and the other with mortgages, and the expense deductibility provisions under the Income Tax Act are not necessarily the same for all types of business ventures.

The appellant’s selling territory, originally in British Columbia, gradually shifted to the Prairies, and he adapted his modus operandi to allow for this and to take advantage of it while continuing to maintain his office establishment and centre of operations and administration in Vancouver. There is no question that he had an office in his home, and had good business reason to keep in frequent contact with it. The matter of also having a post office box on the Prairies for forwarding his mail can only be regarded as a good business move and a convenience to his customers, rather than as a negation of his prime business address. The Wainwright address came long after the establishment of his office in Vancouver. The fact that his office was part of his home, and that it might therefore be argued that there was some personal benefit derived by him from his weekends at home, does not reduce the validity of the major reason for his return, namely, to attend to his business. The question is simply that provided by counsel for the appellant: Is his office in his home? The answer is: It must be—there is no other place it can be.

Decision

The appellant has satisfied the Board that the expenses incurred, which were the subject of this appeal, are business and not personal expenses, and the appeal is allowed.

Appeal allowed.